September 24, 2021
This bank calls one of every three Americans a customer.
If you’re one of them, it’s long past the time to ask: Why?
This bank has the worst reputation of any American financial institution, according to the annual Axios Harris Poll of corporate character.
Over the course of nearly 15 years, its employees opened as many as 3.5 million fake accounts (that’s more than 1% of the entire population of the U.S.) – many of those in the names of actual customers, without their permission.
Even worse, the practice was flagged as a “growing plague” just a few years in. And then… nothing changed.
That alone would be bad enough… But it’s just one of many grimace-inducing, headline-grabbing sideshows of America’s worst bank.
It also forced hundreds of thousands of homeowners to get appraisals that they didn’t need – and then overcharged them. It ripped off military veterans with hidden fees to refinance their mortgages. A (supposed) computer glitch resulted in more than 500 customers losing their homes. The bank charged more than half a million customers for auto insurance that they didn’t need, and which they didn’t sign up for.
A ‘Complete Failure’
A U.S. government attorney has criticized the “complete failure of leadership at multiple levels” at the bank. The Federal Reserve, in an effort to stem the spread of aggressively toxic incompetence and malfeasance wildfire, took the unusual step of imposing an asset cap on the bank to limit its growth.
To atone for its sins, this hallowed institution has paid upwards of $5 billion in civil and criminal penalties and fines. It was hit with a $250 million fine earlier this month for not obeying an order that requires banks to address regulatory standard violations.
This isn’t any busted savings and loan from the 1980s… or a shady money-laundering front that uses a Chinatown address as its U.S. base of operations.
It’s Wells Fargo, the third-largest bank in America (trailing JPMorgan Chase and Bank of America), and the 15th-biggest in the world, with $1.9 trillion in assets. Wells Fargo has 69 million customers, is the third-largest retail mortgage lender in the U.S., and it’s the 20th-biggest American employer, with just over 250,000 employees.
It’s All Good Now…?
But now, “everything’s fine” at Wells Fargo. You see, in May 2018, the bank launched (according to its own press release)…
“… a new, integrated marketing campaign called “Re-Established” to emphasize the company’s commitment to re-establish trust with stakeholders and to demonstrate how [the bank] is transforming as it emerges from a challenging period in its history.”
Apparently – who knew? – public relations and marketing campaigns aren’t just hypocritical efforts to distract customers and regulators from a deep and destructive rot. They can actually make bad things go away. They can repair profoundly and utterly broken processes, practices, mentalities, and reputations.
What’s more… calling the customer apocalypse that’s been Wells Fargo for the past two decades a “challenging period” is like labeling the Armenian genocide(death toll: 1.5 million Armenians) a little squabble between folks trying to make the best of a tricky situation.
The challenges at Wells Fargo have defeated three CEOs (plus an interim CEO) over the past five years (one of whom was fined $17.5 million and was banned from ever working in the banking industry again… the financial industry’s version of ex-communication).
“Who would be mad [that is, crazy] enough to take the top job at Wells Fargo?” asked the Economist in 2019.
The current madman at the helm – since September 2019 – is a former CEO of Visa and Bank of New York Mellon, Charles Sharf. He’s on a short leash, though… his compensation for 2020 of just over $20 million (slightly less than the average pay of the head honcho at big American companies) received the support of only 57% of investor votes in April.
That’s one of the weakest shows of support for the pay package of any major U.S. bank in the decade since votes on pay were instituted, according to investor advisor Institutional Shareholder Services.
In Senator Warren’s Crosshairs
The press release commitment by Wells Fargo to re-establish trust hasn’t satisfied Massachusetts Senator Elizabeth Warren, a long-time champion of consumers suffering under the steel heel of the financial-industrial complex. And as a member of the Senate committee on banking housing and urban affairs, Warren is a bully pulpit to do something about it.
Two weeks ago – in the latest chapter of a long-running and concerted effort to bring Wells Fargo to heel – she castigated Wells Fargo for being an “irredeemable repeat offender” for its “inability to meet regulatory requirements and treat its consumers honestly and fairly.” In a letter to the Fed– “scathing,” “searing,” and “scorching” don’t begin to do it justice. Warren called on the Federal Reserve to break up Wells Fargo…
By invoking its full authority to protect consumers and the financial system and requiring Wells Fargo to separate its consumer-facing banking arm from the rest of its financial activities, the Fed can ensure that Wells Fargo faces appropriate consequences for its longstanding ungovernable behavior.
After months of extraordinary gains, the U.S. stock market is now looking off. Investors worldwide now ask, “Is this the beginning of the end of the most epic stock rally in history?” All eyes are on September 28 for the answers. Here’s the entire story.
What Went Wrong
A 110-page autopsy by the bank’s independent directors in 2017 that tried to get to the bottom of the laundry list of Wells Fargo’s infractions pointed a finger at…
“… sales culture and performance management system, which, when combined with aggressive sales management, created pressure on employees to sell unwanted or unneeded products to customers and, in some cases, to open unauthorized accounts.”
The report also blamed senior management for not changing the incentive model, “sell more to earn more,” that invoked the motivation to creates sales out of thin air. The report also stated management was responsible for then getting in the way of any external assessment of what was going on… and, finally, for minimizing the problem when forced to face up to it.
And that went on for nearly a decade and a half.
In other words, the report blamed executives of the bank… while letting off easy members of the company’s board of directors (who, ostensibly, represent shareholders). The board is supposed to be the grown-ups in the room to control the motivations-gone-mad children.
“Sales practices were not identified to the Board as a noteworthy risk until 2014,” the report explains.
In other words: They didn’t tell us it was a problem, so how were we supposed to know? It was a convenient conclusion for directors – who perhaps didn’t want to risk losing a prestigious and lucrative side gig by shouldering some of the blame.
Says the Board: Who, Us?
As it happens, the law firm that conducted some of the investigative work on behalf of the board for the report, Shearman & Sterling, was compromised, as American Banker explained in June…
What the [2017 independent directors] report didn’t say was that the law firm [Shearman & Sterling] was also representing Wells Fargo’s directors as defendants in a shareholder lawsuit over the same scandal – a detail that might have cast Shearman & Sterling more as advocates for its clients than impartial investigators.
It’s a neat trick: Pay some people to draft an ostensibly credible “independent” report that exonerates the board of directors… And meanwhile, the board of directors is paying those same people to defend the board of directors on a related matter (which was a shareholder suit over the issues that triggered the need for the report in the first place).
Was there any question about the conclusion of the “independent” investigation?
If even the board of directors of Wells Fargo – which since then has almost completely changed, for what it’s worth – couldn’t see the conflict of interest here (or chose to ignore it)… well, no wonder Wells Fargo was (is) such a mess.
The ancient history of the board of directors’ report from four years ago is being resurrected because three former Wells Fargo executives are facing a civil trial this month. They include a senior risk officer, and two senior audit executives, whose job descriptions were precisely to uncover (or, better, prevent) the types of shenanigans that happened on their watch.
Charitably, they were catastrophically bad at their jobs. More likely, it was something much worse.
The suit is an effort on the part of the Office of the Comptroller of the Currency, the (strangely named) federal banking regulator, to impose personal accountability. That never happened even in the aftermath of the 2008 financial crisis, when tragically bad (and stupid and conflicted) decisions by banking executives were like snow on the ground in Siberia.
A Question of Culture
The big question facing Wells Fargo is whether it can change its culture.
Culture refers in part to commonly held values, beliefs, and behaviors that unite a society… and similarly, a company’s culture reflects how employees, management, and customers interact and collaborate. It also conveys (and mirrors) how the business sets expectations, how it motivates and rewards employees, and its treatment of those who break the rules.
If results reflect culture – and they do – Wells Fargo’s problems are the result of a seriously broken culture. If banks were countries, Wells Fargo would be Yemen (ranked as the world’s “most fragile state,” which is a nice way of saying “failed state,” three years running by think tank Fund for Peace).
Cultures evolve, of course, over generations. The evolution of a company’s culture can be accelerated by bringing in a new slate of employees – and ultimately replacing everyone who was complicit in the corruption of previous regimes, with people who know how to do things the right way. A culture can erode, or be replaced, with time.
But changing the DNA of an institution, especially one with a quarter of a million people, isn’t quick or easy. Just ask the National Football League’s Detroit Lions, who haven’t won a playoff game since 1991, or a championship in the Super Bowl era.
The stench of defeat has dogged the team for decades, while every new general manager or coach heralds renewed efforts to “change the culture.” And that’s in football, where an owner has a lot of leeway to yank the tablecloth and start afresh – and it still doesn’t work.
Friends Don’t Let Friends Bank at Wells Fargo
As Warren wrote to the Fed a few weeks ago…
It is clear that continuing to allow this giant bank with a broken culture to conduct business in its current form poses substantial risks to consumers… every single day that Wells Fargo continues to maintain [deposit accounts] is a day that millions of customers remain at risk of additional negligence and willful fraud. The only way these consumers and their bank accounts can be kept safe is through another institution – one whose business model is not dependent on swindling customers for every last penny they can get.
Investors don’t seem worried. Wells Fargo shares are flat over the past five years. By comparison, the shares of JPMorgan Chase are up 132%… Bank of America, 159%.
But since October, Wells Fargo shares have more than doubled, suggesting that the market is sanguine about the bank’s future – or, at a minimum, it suggests that Wells Fargo isn’t going to do any worse than the rest of the banking sector. The share price of a big financial institution ETF, the Financial Select Sector SPDR Fund (XLF) – in which Wells Fargo is a large holding – has also doubled since last year.
Of course, changing the place where you bank is a hassle. And the other big banks in America aren’t exactly angels, either (though compared to Wells Fargo, they are). And as a systemically important financial institution, Wells Fargo can do a lot of stupid and bad things and it will still be bailed out by the U.S. government.
Meanwhile, the Axios Harris reputation poll still shows Wells Fargo as a banking cellar dweller. But in recent years its score has crept up. “Reputation rankings show Wells Fargo’s massive rehabilitation campaign may have worked,” Axios reported in May.
For her faults, Warren is a dogged defender of the consumer. And she’s in a position to know more about what’s really happening in America’s banking industry, and its banks, than anyone (certainly more than the consumers who participate in reputation-ranking polls).
And she’s saying: This bank is toxic. But Wells Fargo still has plenty of customers (69 million, in fact).
Are you one of them? And if so… why?
Get yourself to the local community bank, where you might be a face rather than another number… or get on the blockchain, where – for all of its growing pains – there is a public record of every single transaction.
And say goodbye to Wells Fargo. Please.
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September 24, 2021